This is the second part in a three-part series on the IRS’s DUPTIN screening procedure and electronic return rejections by Justin Schwegel. For Part I about Tanya and Alex’s DUPTIN experiences click here. Keith
DUPTIN Electronic Return Rejections and Exceptions
To recap Part I, the IRS’s DUPTIN review procedure is aimed at preventing fraudulent tax returns and/or improper claims for tax credits. The IRS freezes refunds on returns where the primary or secondary SSN has already been used as a primary/secondary and rejects electronic returns claiming a child or dependent that has already been claimed.
The IRS takes its role as enforcer of the tax code seriously. However, the IRS role as benefits administrator is to ensure that taxpayers who claim benefits they are legally entitled to do not have these claims rejected. This role is just as important as fraud prevention. However, the IRS’s current DUPTIN procedure rejects many taxpayer claims for benefits to which they are entitled.
The IRS rejects a second electronic return if it claims an earned income credit or dependent exemption for an SSN that has already been claimed on another return (IRM 126.96.36.199.1.3). There are three exceptions. They are: 1) if there is a recertification indicator on the account of the taxpayer who filed first; 2) if the taxpayer who filed second has overcome an EITC audit (i.e. received a “no-change” letter) in the past two years; and 3) if the federal case registry shows that the second return belongs to the custodial parent.
A recertification indicator requires a taxpayer to file form 8862 to recertify eligibility for certain tax credits. This is required if they have had an earned income credit, child tax credit, additional child tax credit, other dependent credit or American opportunity tax credit reversed under examination procedures outlined at Internal Revenue Manual (IRM) 188.8.131.52. A recertification requirement is the lowest bar the IRS can place for someone who has had these credits reversed and is far preferable to more punitive actions the IRS can take such as a 2-year or 10-year ban from claiming the credits.
The second exception shows a taxpayer has undergone an exam for the EITC and demonstrated to the satisfaction of the examiner that they were the rightful person to claim a qualifying child for EITC purposes. A taxpayer who has overcome a recent EITC audit is more likely to be entitled to the credits.
The Federal Case Registry Exception
The third exception relies on the information in the Federal Case Registry (FCR). The FCR is a national database of all child support cases handled by state child support agencies. It contains information about custodial parents for title IV-D and non-Title IV-D cases. Title IV-D cases get their name from Title IV Part D of the Social Security Act (SSA). Title IV-A of the SSA provides grants to states to provide assistance to “needy families with children and for child-welfare services.” Title IV-D allocates money to states to establish paternity and requires states to subrogate the claims of custodial parents against noncustodial parents for child support in order to reimburse state welfare programs. Essentially the federal government funds state welfare programs contingent on the state attempting to collect reimbursement from noncustodial parents who owe support. Non-Title IV-D cases are cases in which a support order has been entered but no claim for public assistance has been made.
States are obligated to maintain state case registries (SCRs) as a condition to receive federal funding. The FCR is built on these SCRs from which they pull information. In Florida, where our LITC is located, the Department of Revenue maintains the registry for Title IV-D cases and relies on 67 different county officials to report information to the state case registry in non-Title IV-D cases.
With so many moving parts, the integrity of the FCR is questionable. In the past the IRS exercised math error authority to reverse earned income credit claims where the claim conflicted with the information in the FCR. An IRS study found that 39% of those math errors were issued improperly and the credits were claimed correctly. Following this study, the IRS determined that the FCR data are not a reliable sword for using math error authority to reverse credit claims. They are also not a reliable shield to protect custodial parents from DUPTIN rejection of electronic returns.
It’s important to understand what these exceptions to the general DUPTIN electronic rejection mean. The IRS uses available data that demonstrate the second taxpayer to claim a child is possibly the person entitled to claim the child. If the FCR shows the second taxpayer is the custodial parent then it is more likely they really are. The same applies if the first taxpayer has had the credits reversed in the past or if the second taxpayer has recently overcome an audit.
The exceptions to the DUPTIN rejection rule only remove an information hurdle. Taxpayers falling under an exception will not have electronic returns rejected and will not lose out on credits if they do not know to file a paper return. However, the IRM makes clear that the exceptions do not change the fact that the return will still be flagged as DUPTIN and are “still subject to the DUPTIN examination process…” (IRM 184.108.40.206.1.3).
DUPTIN Audits: exam soft notices and full scope exams
A return flagged as DUPTIN will usually be subject to either an exam soft notice or a full scope exam. The first use of a TIN, for e.g. the earned income credit, is not flagged as a duplicate TIN (IRM 220.127.116.11.6(1)). Only returns filed after the first return are considered duplicates and flagged by the IRS software. A taxpayer can successfully submit a DUPTIN return either by paper or by falling under one of the three exceptions outlined above. The IRS’s default presumption is that the taxpayer who wins the race to file is correct. This presumption is transparently arbitrary.
IRM 18.104.22.168.2 and 22.214.171.124.48 describe “exam soft notices” sent to taxpayers whose returns are flagged for DUPTIN for the first time. Notices in the CP 87 series are sent to DUPTIN-flagged taxpayers for “information only” and no adjustments will be made unless the DUPTIN taxpayer initiates them.
Although IRM 126.96.36.199.6 states that taxpayers who have duplicated a TIN for more than one year are considered for audit, IRM 188.8.131.52.1 states that where a Dependent Database Business Rule has been broken the DUPTIN return will be selected. The Dependent Database is described in great detail at IRM 2.3.80 and it is clear that it includes information from past returns, including DUPTIN returns, information from the Social Security Administration, and information from the Federal Case Registry.
Most of IRM 184.108.40.206 describing the how the Dependent Database information will be applied to DUPTIN returns has been redacted. It is notoriously difficult to obtain redacted portions of the IRM because IRS often invokes the Freedom of Information Act (FOIA) exception for law enforcement techniques and procedures at 5 USC 552(b)(7)(E). However, IRM 220.127.116.11(6) and IRM 18.104.22.168(7) strongly imply that if the information on the DUPTIN return conflicts with the information in the Federal Case Registry the return will be selected for audit, presumably even when it is a taxpayer’s first DUPTIN submission. As noted above, that database is not reliable.
Unfortunately, once a return is selected for audit, subsequent year returns from the same taxpayer flagged as DUPTIN can be audited and have refunds frozen pending the results of the first DUPTIN examination (IRM 22.214.171.124.1(8)).
EITC DUPTIN audits are “full scope” audits. This means the entire return is open to adjustment, including filing status, EITC, child tax credits, child and dependent care credits, student loan interest deductions, American opportunity tax credits, etc.
IRS audits are difficult to overcome. As noted above, where a survivor of domestic violence has changed their address without updating the IRS or Postal Service, they will likely lose by default because they will never receive nor respond to the audit notice.
Gulfcoast Legal Services submitted a FOIA Request for IRS statistics on taxpayer success rates in correspondence exams from 2017 to 2021. The results are concerning:
About 40% of taxpayers fail to respond to correspondence exam notices. In an average year less than one in five taxpayers were fully successful at overcoming their exams (i.e. receiving a “no-change” letter). For 2021 only 30% of taxpayers who responded to correspondence exams were successful.
Only in the unlikely event that the DUPTIN audit is overcome, i.e. the “determination is made to no-change the case,” will the other taxpayer be audited (126.96.36.199.6(2)).
Other DUPTIN cases
Although the focus above has been on those returns where competing returns claim qualifying children or dependents, this is not the only context in which the IRS’s DUPTIN procedures come into play. IRM 188.8.131.52.5 describes IRS procedures if a taxpayer identification number is used as a primary on one tax return and a secondary on another tax return. The IRS procedure is to post the second return to the master file and freeze any refund on the second return while it requests additional information. These delays alone can cause harm to financially vulnerable taxpayers.